How does corporate venture capital enhance incumbents' innovation? Evidence from China

This paper examines the impact and mechanism of corporate venture capital (CVC) on innovation, with a specific focus on industrial funds implementation by venture capital of Chinese listed companies by utilizing a multi-period Difference-in-Differences (DID) model. Our findings demonstrate that CVC facilitates innovation not through "learning" but rather through "acquisition". CVC increases companies' acquisition activities and the innovation of new subsidiaries, but it does not increase the innovation learning of the parent companies themselves. Notably, this effect is amplified in companies facing greater investor pressure, analyst pressure, and media pressure, suggesting that listed companies encounter supervisory pressure that drive them to acquire external innovation directly rather than internalize it. Our research provides compelling evidence supporting the pivotal role of CVC in promoting corporate innovation in China, revealing distinct channels for innovation promotion compared to developed countries. These empirical findings enhance our understanding of CVC dynamics in developing economies.